July 05, 2011

Agencies As Incubators

Does it make sense for an ad agency to launch an incubator for tech start-ups? You could (and many no doubt would) say that this was merely a distraction from the day job. An unnecessary aberration from what agencies are meant to be doing. Personally, I think it makes a bunch of sense. Here's why.

This year's Cannes Lions seemed to be a marker in the sand of how the tech and ad worlds are increasingly colliding (or 'marrying on the beach', as Mel eloquently put it). But as Olivier Blanchard points out, whilst agencies don’t need to become technology innovation engines, there undoubtedly is a need for ongoing collaboration with technology pioneers, for staffers to become tech savvy, and just for them to keep up: "Technical innovation can increase agency capabilities, cut costs, accelerate the campaign development process, and blow everyone’s socks off (consumers and clients). Who wants to turn that down? You?"

The Portland Incubator Experiment has been going for a couple of years, actively supported by Wieden & Kennedy, and serving "as a hub for community, entrepreneurship, and creative thinking." Startups get access to upto $18,000 of seed funding, office space in Portland for a three month period, and get to collaborate with and learn from other startups in residence, industry mentors, successful alumni and Wieden & Kennedy staffers. PIE also offers access to "thoughtful" investors, and exposure to Portland's mobile and open source development communities. It's a lot like Paul Graham's excellent Y-Combinator model, except this year W&K are involving several brand clients including Nike, Coca-Cola, and Target (brands who "aim to find unexpected solutions, accelerate new business, and keep innovation at the forefront") and PIE are looking for startups which have emergent opportunities that are brand and business aligned.

This reminded me of this rather intriguing (and anonymous) answer on Quora about how Apple uses its significant cash reserves to maintain a decisive advantage over its competitors in product quality. When new component technologies first arrive, says anonymous, the upfront capital expenditure required to produce them can be so huge, and the margins so slim, so as to make it prohibitive for manufacturers. Apple steps in and uses its cash to help pay for the building of manufacturing capacity in exchange for exclusive rights to the production output for an agreed period of time (6 - 36 months perhaps), and following that for a discounted rate. This enables Apple access to new technologies far ahead of its rivals, which it can use to create products that cannot be duplicated. Once competitors catch up, and the technology becomes commoditised, Apple still has advantage through the special pricing it has already agreed. This means that once the product line is no longer premium, it can still be produced more cheaply, yielding higher margins and more cash, which can then be reinvested in continuing the cycle. They are in effect "creating an unrivaled exclusive supply chain of advanced technology literally years ahead of anyone else on the planet".

What Apple have foreseen, is the advantage that comes from building a unique pipeline of smart cutting-edge technology. And to draw a parallel, what W&K have seen is the advantage that comes from mixing it with smart, cutting-edge technology talent. W&K's involvement in PIE is part of a series of experiments, they say, to help transform the industry, redefine brand experiences, and build new relationships with the communities they reside in.

That last one - the opportunity (particularly in these difficult times) to invest in entrepreneurs and to give something back - is reason enough to do it. But I think they realise many other advantages in engaging with people and thinking at the forefront of technology. Not least a point of difference for their business. Access to new and interesting tech. But most of all, access to the talent and to new and different thinking applied in creating solutions to problems. No, agencies shouldn't be technology innovation machines, but the smart thing about what W&K are doing is that they are making themselves a contributory part of the local tech scene, making connections, and no doubt soaking up some of the culture, more than a little of the expertise, and a healthy dose of that startup pixie dust. It's a model that other businesses, and not just agencies, could learn from.